Change in the procedures with the introduction of VAT in UAE

Posted on Nov 30, 2017

Change in the procedures with the introduction of VAT in UAE

The UAE Minister of State for Financial Affairs, His Excellency Obaid Humaid Al Tayer, has stated that the UAE will implement VAT at the rate of 5% on 1 January 2018.UAE issued a tax Law covering common procedures for taxes which will help people in understanding and implementing VAT effectively. 

According to the announcement, the UAE will impose VAT at a rate of five percent on the sale of goods and on services as from 1 January 2018. The five percent rate has been agreed between all GCC countries, the implementation will take place throughout the GCC, however the other GCC countries have from 1 January 2018 until 1 January 2019 to also implement VAT.

In order to deal with the challenges, businesses in the UAE should evaluate and review their daily business activities as well as authority  elaborated some of  the procedural changes which are needed with the introduction and implementation of VAT in UAE, this covers a number of issues related to VAT,  tax procedures, audits, objections, refunds, collection, and obligations – which include tax and VAT registration, return preparation, submissions, payment and voluntary disclosure rules – in addition to evasion and general provisions etc.

According to the law, Federal Law No. 7 of 2017 for Tax Procedures, includes the following principles in relation to VAT:

  • VAT registered businesses must maintain accounting and invoice records to support their taxable transactions and returns
  • Records must be maintained in Arabic
  • Any business providing taxable supplies must register for VAT, and submit returns and remittances on prescribed timetables
  • Only tax authority-registered tax agents may represent companies in tax affairs
  • The tax authorities may perform audits on any registered businesses

Authority have also issued some guidelines that will help businesses to get VAT ready, as businesses need to change the old process of work and have to adapt the new ones to keep themselves abreast and updated, From experience in other markets, the establishment of clear regulations and efficient administrative processes is vital for VAT introduction to be a success. Businesses in the UAE (and GCC) should start planning now how the changes could impact their business, to ensure a smooth transition.

Businesses will have to adapt to the changes by identifying the impact of VAT on their business, and key immediate considerations are to:

  • Assess capability of existing systems,Businesses also need to complete an impact assessment to understand VAT and its commercial effects, prioritize issues and prepare for implementation

·         Identify VAT implementation strategy and Businesses need to prepare a project plan.

  • Identify contracts that need a VAT action
  • Businesses need to design the systems and train their staff on the process requirements for VAT.
  • Businesses need to register for VAT and test their business systems to ensure they are capable of compliance and reporting.
  • Identify intercompany transactions
  • Undertake training / awareness

A potential VAT implementation will also have immediate effects on consumer behavior which gives opportunities for companies to assess their business direction and to plan strategically. After implementation, VAT will influence practically all functions within a business, including IT, HR, acquisition, back and advertising.

Therefore, all businesses must undertake and review their current situation in terms of their suppliers and customers and if the former are registered or not. The timely training of employees will play a crucial role.

It is advisable for all businesses to start the review and preparation process in a timely manner to be able to evaluate their company’s situation and apply the necessary changes – after all, to paraphrase W. Edwards Deming “if you can measure it, you can manage it”.

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